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money investment, financial investment
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4/24/08 Investment House Daily
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MARKET ALERTS:
Targets hit alerts: None issued
Buy alerts: BG; NUVA
Trailing stops: JASO; TITN; UPL
Stop alerts issued: KOP; MON
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SUMMARY:
- Nice recovery off the early swoon and not too worried about the late pullback.
- Jobless claims post a nice contraction.
- Durable orders lower than expected, but ex-trans they post a strong rebound.
- Legislators seek sanctions if OPEC doesn't pump more. Barrels of oil, however, aren't the problem.
- MSFT earnings, as with AAPL, sandbag the next quarter.
Was Apple sandbagging? Sure it was.
Earnings were key, but at the start of the day the economic data played a big role. AAPL was down and up Wednesday after hours and Thursday it opened flat. Not bad at all, but with the triumvirate struggling again (energy, ag, metals), the market needed large cap techs to pull the train a bit. Early on that was an open issue and as the market looked for help, the economic data showed up. Jobless claims fell to 342K (375K expected), durables were lower than expected, but ex-trans they jumped 1.5% and capital investment jumped 4.1% in Q4.
That data bucked up futures and pulled them closer to flat to start the session. That still didn't solve the problem, however as the big three struggled as noted as the dollar rallied again, rising to a 4-week high versus the euro and the biggest gain against the euro since December. A belief that the Fed has hit the right mix and does not have to wantonly cut rates arrested the dollar's decline in March. It has based for 6 weeks. Thursday it broke sharply higher off the lows of the base. Sharply off the lows. Looks a lot like the SOX break higher.
That dollar had the Three struggling as money moved around the market once more. Oil dropped once more as it continues to slide after dancing with 120/bbl. Gold fell again after it teased 1000 in March, crashed lower, bounced, but is ready to really drop once more. Is this the end of the Big Three trade? This happened in January and again in March with the Fed's big moves that showed it had taken charge. Money rotated out of them at that time, but it only came back in shortly thereafter and all stocks pulled together to the upside. As money moved out of these three into other areas the market continued its move higher just as it did on Thursday. Then when the Three came back to the buyers, all worked together for some really nice gains. Right now we are in that early part of the cycle again where the money moves around, revives slumbering sectors, and then after a pullback by the big Three all make another push higher. This is all a positive for the market with this rotation.
TECHNICALLY the intraday action was not bad at all: stocks shook off some early weakness as investors moved in to take advantage of the lower rates. Apple and RIMM were bought aggressively and they led the market higher into the afternoon with some impressive point turnarounds (170 on DJ30, 50+ on NASDAQ). There was a last hour fade that took some luster off the recovery, but the action was not bad at all even with that fade.
INTERNALS: Breadth was so-so at roughly 1.8:1. The more interesting aspect was the once again rising volume on NASDAQ (rose above average) and NYSE. It broke higher on NASDAQ as that index made an important breakout. Beautiful. Buying on a breakout over resistance is always the best.
CHARTS: SP500 tapped the 90 day SMA on the intraday low and rebounded, just missing the February high on rising volume. Nice recovery with buyers moving in. Cool (sticking with the '70's lingo from Wednesday night. For those of the sixties, groovy). DJ30 tested the 10 day EMA intraday and rallied back, holding onto its breakout in the process. Also cool. NASDAQ broke over the February peak and it did so on rising above average volume. Way cool. It joins the Dow on that key move. SOX hit a new recovery high on its breakout. Very cool as well. SP600 small caps? Well, they led the move in percentage gain, but they still have yet to take out any of the recent highs since February.
LEADERSHIP: As noted, the triumvirate sold once more as money moved elsewhere thanks to dollar strength. Similar to what happened in mid-March when the Fed took action and the dollar came to life (though getting a pulse back after being clinically dead does not mean handsprings are next). That didn't stop the Three from coming back to life and surging in April. The key for them is how they come back from this test of support. Some broke down Thursday while others just tested some more. Transports were solid again though some just took a rest. Large cap tech was moving up again. Retail stocks of many types had a solid session. Money is moving around as new areas pick up steam: GS is making a breakout and that is a key; want to get in on some of that, but more than that, there are more leaders trying to push their way in. That is way cool as well.
THE ECONOMY
Durable goods orders fall but are strong.
Sounds like an election year statement when you can say a 0.3% decline when a flat showing was expected is strong. The headline number, however, just doesn't tell the story.
First, the February loss was revised higher to -0.9% from -1.7%. Slicing a loss in half is always super, and the way to really get a feel for a trend is to look at revisions. November was up 0.5%, December posted a strong 4.4% (an aberrant month for most indicators), January was down 4.4%. Now some of those weak numbers are revised away. That is always an early warning flag.
Second, take out a diving transportation sector and orders rose 1.5% after falling 2.1% in February. That is the best showing since December's 1.9%, and we know December was a big, big month. That makes for an impressive showing in March.
Third, when you factor in the March reading, you get a 4.1% gain in capital expenditures in Q1. That is an excellent recovery. Don't want to get too excited, but this underscores a nice report all around.
No arms to OPEC without more barrels.
There is always an uneasy, unholy union between the west and OPEC. We need what they have and they need what we have. Beyond that there is not much camaraderie.
With oil prices tickling 120/bbl the past week and gasoline prices expected to hit $3.60/gallon this week and top $4 easily in the summer, and given there is an election in November, you can make book that someone is going to try and use the issue for political gain. You could make book on that even without the election, but that just makes it as certain as a Spitzer date with his favorite call girl.
Basically some democrats are saying if OPEC does not provide more oil we won't sell arms to members who usually get our weapons. Not picking on any party in particular; it just happened to come from the democrats first. The lack of understanding of the problem this demonstrates is incredible.
It is not an issue of the number of barrels of oil. There are plenty of barrels in storage and in transit across the globe as we speak. The problems are fear that the supply could be cut by, say for instance, an attack on western oil tankers. That happened earlier this week to a Japanese tanker off the always calm and peace-loving Yemen coast. That is a real fear; if tankers start getting hit the cost of oil goes up one-third overnight.
Another problem is the lack production facilities to turn crude into what we need. You can have millions of bushels of wheat, but if you don't have a way to mill it you cannot make bread, pastries, cereal, etc. Or to use a corn analogy, you can't squander it to use for ethanol. We need gasoline and diesel fuel; lots more of it without any worry of the lack of capacity to produce whatever we need. This summer just a storm or two that hits refinery row and we don't have enough. The lack of facilities to make enough right now is driving prices higher. The added concern about the storm scenario adds a premium to the price as well.
So if OPEC ships more barrels we have more in storage, but they are not going to spontaneously convert to gasoline and diesel. They still have to go through the bottleneck of too few refineries to handle our needs. Ironic isn't it? A lot of democratic legislators are complaining about Strategic Petroleum Reserve purchases driving prices higher, yet they are basically doing the same thing by demanding OPEC send us more barrels. We are flooded with oil in storage yet price rises. More oil in more tank batteries is not going to drive prices lower.
But then again, it is election year. Logic? Why try that when factually unsupportable emotional appeals are fed to and believed by an ill-informed electorate?
THE MARKET
MARKET SENTIMENT
VIX: 20.06; -0.2
VXN: 23.72; -1.34
VXO: 20.4; -0.24
Put/Call Ratio (CBOE): 0.91; -0.03
Bulls: 39.1%. Up significantly this time, rising above last week's 37.8% where it held for a few weeks. Has now crossed back above bears, the usual positioning of the two. Fell to 30.9% in mid-March. The indicator did its job with the dive below 35% and the crossover with the bears. The bulls and bears were eye to eye in mid-February and have crossed. A move into the lower 40's is a decline of significance. A move to 35% is a bullish indicator. This is smashing that. For reference it bottomed in the summer 2006, the last major round of selling ahead of this 2007 top, near 36%, and 35% is considered bullish.
Bears: 35.6%. Sharp decline as the market makes a rally attempt stick for now, up from 38.9% last week and 38.5% and 37.5% the week before. As with the bulls the jump in bears did its job after hitting 44.7% in the third week of March that was up from an already freakishly strong 43.3% the week before. That was a surge from an already high 36.6% the prior week. Up sharply from a low of 19.6% on the last rally. It is over 30% and indeed over 35% the prior week, meaning it has blown past the range that means business. Big move after falling to a low of 19.6% on this round. Bearishness peaked at 37.4% in September 2007. It topped the June 2006 peak (36%) on that run. That June peak eclipsed the March 2006 high (33%) and well above the 2005 highs that spawned new rallies (30% in May 2005, 29.2% in October 2005). This is a huge turn, unlike any seen in recent history.
NASDAQ
Stats: +23.71 points (+0.99%) to close at 2428.92
Volume: 2.321B (+8.82%). Best volume since March expiration, even topping last week's expiration trade. Very good to see as NASDAQ clears key resistance.
Up Volume: 1.657B (+106.388M)
Down Volume: 647.349M (+112.885M)
A/D and Hi/Lo: Advancers led 1.81 to 1. Pretty ho-hum for the session but not bad.
Previous Session: Advancers led 1.19 to 1
New Highs: 18 (+3)
New Lows: 59 (-69)
NASDAQ CHART: http://investmenthouse.com/ihmedia/NASDAQ.jpeg
NASDAQ gapped higher, tapped the 90 day SMA on the low, and then bolted back up, surging past the early February high at 2420. Closed 19 points off the high and that took off some of the shine, but still a solid break higher on volume as NASDAQ joins DJ30 in a breakout over the February high, and that means a breakout from the consolidation on the bottom of the selloff from October.
NASDAQ 100 (0.94%) rallied nicely as well as it furthered its breakout move. Solid moves form AAPL, RIMM helped, but NASDAQ overall was still a bit stronger. No complaints about that.
SOX (1.45%) added to its breakout as well. It is about 9 points off resistance just over 400 and it looks as if it wants to test that resistance on this move.
SOX CHART: http://investmenthouse.com/ihmedia/SOX.jpeg
SP500/NYSE
Stats: +8.89 points (+0.64%) to close at 1388.82
NYSE Volume: 1.451B (+7.36%). Volume rose here as well but it was not as dynamic as NASDAQ. Trade did not top last Fridays expiration trade and it thus did not make it to average. NYSE was the first to show good price/volume action but it sure would be nice if it showed stronger trade as it takes on the February high.
Up Volume: 947.7M (+319.204M)
Down Volume: 493.655M (-201.818M)
A/D and Hi/Lo: Advancers led 1.74 to 1
Previous Session: Advancers led 1.12 to 1
New Highs: 27 (+6)
New Lows: 15 (-26)
SP500 CHART: http://investmenthouse.com/ihmedia/SP500.jpeg
SP500 opened higher, sold back to test the 90 day SMA on the low, then recovered along with the market for a decent gain. It was stronger as SP500 again tapped near 1400 on the high, but it gave back a bit more than it ended up with on the session. Still in excellent position to make a higher low here and then make the breakout over that February high that is being called 1400 by the news media.
SP600 (+1.40%) posted a nice gain but even with that it could not make the prior two April highs that tested the February peaks. The small caps are still lagging overall even though they led on the day. Again, a follower for now, but if they make a breakout that will be a significant move for the economy as the small caps are so closely tied to its rises and falls.
SP600 CHART: http://investmenthouse.com/ihmedia/SP600.jpeg
DJ30
Volume was up though still below average as the Dow moved past its April peak hit last week (12,894) but then slipped below it to the close. As with SP500, still in excellent position to renew its ascent toward next resistance, roughly at the 200 day SMA (13,078).
Stats: +85.73 points (+0.67%) to close at 12848.95
Volume: 249M shares Thursday versus 244M shares Wednesday. Rising trade, but still below average for the blue chips. MSFT announced earnings and was down after hours and that will likely provide some more volume on Friday.
DJ30 CHART: http://www.investmenthouse.com/ihmedia/DJ30.jpeg
FRIDAY
Michigan sentiment is all that is scheduled on the economic front though any insight into the consumer psyche right now is potentially market moving. It is not expected to show any improvement, understandable given ever rising gasoline prices and the bitterness we are all feeling as a result.
The earnings after hours were mixed with MSFT beating expectations, guiding higher on the year, but guiding below expectations for the current quarter. A bit of AAPL earnings management here? Of course. MSFT does the same number as Apple with respect to guidance. Some say no, but just look at its history. In any event, it was sold off after hours and it didn't rise as did AAPL late in the session. As with Apple we will see if investors look beyond the current quarter and on to the rest of the year that is predicted to be a humdinger. MSFT had a run into the results, so a bit of giveback is understandable. A bit.
Outside of MSFT, American Express reported a great quarter, beating the street and rising 5% after hours. Seems consumers are not that afraid to use credit cards. MA and V were up sharply after hours on the AXP news, and we could see this spread out further through the financial sector.
What will be important with respect to MSFT's earnings is how NASDAQ reacts overall. It just cleared the February high Thursday and you want to see it hold that move and not give it right back. Some large cap techs traded in sympathy with MSFT after hours, but there was no vast large cap tech conspiracy to send things lower.
The keys for the session are how tech responds to MSFT, how the Big Three react at support, and whether money continues to move into new areas that have developed better patterns such as in some financial stocks. The market continues to generate more solid patterns, and as they make their moves in this rally it behooves investors to step in and ride the upside breaks. Thus we will continue to do just that as the opportunity presents.
Support and Resistance
NASDAQ: Closed at 2428.92
Resistance:
2451 is the August closing low
Some modest resistance at 2500 from interim August lows.
The 200 day SMA at 2531
2595 is an old trendline from summer 2004/summer 2005
Support:
2419 is the January 2008 peak and the early February peak
2392 is the April 2008 peak
2386 is the August intraday low
2379 from the October 2006 peak
2378 is the mid-February peak
The 90 day SMA at 2377
2370 from the April 2006 peak
The 50 day EMA at 2344
2340 from the March 2007 low
2298 is the trendline from the summer 2004/July 2006 lows, Q4 2005 consolidation
2261 is late March higher low
2252 is the early February low
2221 is March low
2216 from August 2005 peak
2202 is the January intraday low
2175 from the December 2004 peak
2168 is the March 2008 low
S&P 500: Closed at 1388.92
Resistance:
1396 is the February 2008 peak
1406 is the August and November 2007 closing low
1421 is a longer term trendline from the August 2003/September 2004 lows
1433 from a pair of August 2007 lows and December mid-month intraday low
The 200 day SMA at 1437
Support:
1387 is the April 2008 intraday high
The 90 day SMA at 1368
1374 is the March 2007 closing low
1370 is the August 2007 intraday low
The 50 day EMA at 1357
1326 is an ancient trendline
1325 from May 2006 peak prior to the summer 2006 correction
1317 is the early February low
1305 to 1302 from an August 2006 peak and matches a range of support from March and April 2006.
1294 from the January 2006 peak
1288 from June 2006
1280 from June and August 2006
1272.66 is the March 2008 low
Dow: Closed at 12,848.95
Resistance:
The 200 day SMA at 13,078
13,092 is the December 2007 intraday low
13,250 from price points in second half of 2007
13,563 is the late December peak
13,780 is the early December 2007 peak
Support:
12,845 is the August closing low
12,786 is the February 2007 peak
12,750 to 12,768 is the February 2008 peak and a series of lows and highs from August 2007
12,743 is the November low
12,573 is the mid-February high
The 90 day SMA at 12,548
The 50 day EMA at 12,519
12,518 is the August intraday low
12,250 from late March 2007 lows
12,070 from the early February 2008 lows
12,050 from the March 2007
11,731 is the March 2008 low
11,670 is the May 2006 intraday high; 11,642 closing
11,634 is the January intraday low
Economic Calendar
These are consensus expectations. Our expectations will vary and are discussed in the 'Economy' section.
April 22
Existing Home Sales, March (10:00): 4.93M actual versus 4.92M expected, 5.03M prior
April 23
Crude oil inventories (10:30): 2.42M actual versus 1.5M expected, -2.35M prior
April 24
Durable goods orders, March (8:30): -0.3% actual versus 0.0% actual versus -0.9% prior (revised from -1.7%)
Initial jobless claims (8:30): 342K actual versus 375K expected versus 375K prior (revised from 372K)
New home sales, March (10:00): -8.5% actual versus -5.3% in February (526K actual versus 580K expected, 575K prior (revised from 590K).
April 25
Michigan sentiment, April revised (10:00): 63.2 expected, 63.2 prior
End part 1 of 3
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money investment
financial investment
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